TIME: Markets normally rise, and your chances of making money significantly improve over time. As the adage goes, it’s ‘time in the market, not timing the market’. We look at 150 years of US stock market price-only returns and over 300 years of UK returns. Your chances of making money in any one year are at least 60% and can rise to over 90% if held for longer. Despite the long exceptions, like the 1930’s great depression and 2000’s tech bubble, human ingenuity, real profits growth, and the power of compounding returns, are all big drivers on your side. These performance cycles are now shorter, as are the length and depth of recessions. The S&P 500 has seen 3 back-to-back annual price falls since 1950 vs 7 the prior 75 years. With economies less cyclical, central bankers more capable, companies more profitable, and more tech-driven.
DATA: We analyze rolling 1 to 20 year price returns for the S&P 500 since 1871, from Robert Shiller. And UK All-Caps since 1710, from the Bank of England. This shows (see chart) the likelihood of a positive return in any one year is 69% in the US and 62% in the UK. This rises to near 90% in the US by year fifteen, the same year it nears 80% in the UK. Using UK data from 1871, as in the US, does not change the results. As the US’s long-term outperformance stays intact, with its faster economic growth, shareholder-focus, and more recent tech leadership.
EXCEPTIONS: The historic data clearly shows the benefits of investors ‘time in the market’. But it can also mask the significant intervening periods of negative returns. So, time should not be a replacement for investor engagement, diversification, or portfolio rebalancing. It took Japan’s Nikkei 225 thirty-four years to regain its 1990’s property bubble high. The S&P 500 twenty-two years to regain its 1929 high prior to the great depression, and thirteen years to rise above its 2000 pre-tech-bubble levels. The UK’s FTSE All Share index is still below its 2018 price high.
All data, figures & charts are valid as of 29/01/2024.